Home Depot stocks can benefit from low expectations by 2020

Home Depot stocks can benefit from low expectations by 2020

<p>Last year was an exceptional year for the Home Depot (NYSE: HD) stock, as the HD stock has increased by over 31% over the past 12 months. This growth comes despite the stock falling over 10% after the company’s latest earnings report. In that report, the company beat results, but was below revenue expectations.

Source: Cassiohabib / Shutterstock.com

In addition, the company disappointed investors with a total sales growth forecast for 2020 of 3.5% to 4%. And even if this number were higher than the year before, it was far below the growth that Home Depot projected just two years ago.

However, what may have been bad news for traders may be good news for investors. This is because the long-term outlook for HD stocks still looks good.

As I see it, there are several reasons for investors to be happy with the Home Depot stock. First, it is a company that should benefit regardless of how the housing market plays out. It successfully migrates to the omnichannel model that runs successful retail stores. And it is still a good dividend stock that makes it an exceptional choice for investors with total value.

The company does not need new home sales

On the surface, it may sound like a ridiculous statement. But the reality is that even though the construction market is important for Home Depot, so is the remodeling market – and that’s what I want to look at.

The Wall Street Journal published a study by real estate agent Redfin in which homeowners reported that they stayed in their homes an average of 5 years longer than they were in 2010. But for Home Depot, that could be a positive sign. Just because a homeowner decides to stay in their home does not mean that they want their home to be the way it is. They often modernize, and that’s good news for Home Depot.

During its Investor Day event in December 2019, the company cites healthy consumption spending, low unemployment and rising wages as three reasons for optimism. In addition, with the total housing capital rising, homeowners have the opportunity to begin renovations.

But that does not mean that Home Depot is discounting new home sales. Home Depot’s CEO and CFO Richard McPhail predicted a GDP increase of 1.8% by 2020.

“Although we do not expect to see the same tailwind as in previous years, we do expect to see a positive impact from housing,” he said.

One Home Depot is still under development

Another perceived catalyst for Home Depot’s long-term growth is the company’s omnichannel “One Home Depot” initiative. Helping consumers get the products they need anytime, anywhere, anywhere is not cheap. The expected cost of One Home Depot is $ 11 billion, and as part of that investment, the company is spending $ 1.2 billion to create 150 new distribution facilities. When all facilities are in operation, Home Depot will be able to deliver the same day or the next day to 90% of the country.

Over time, analysts see this as a source of growth for Home Depot. In the short term, however, the company still absorbs these costs. This is a time when the company is already predicting stricter margins and revenues that are below analysts’ expectations.

Although the transition to omnichannel can be expensive, most industry analysts believe it is important. Especially since Amazon (NASDAQ: AMZN) is rumored to be gaining a foothold in the household sector.

Investors can buy HD shares for their dividend

As InvestorPlace contributor Dana Blankenhorn recently pointed out in a column, Home Depot has offered a significant dividend that has continued to grow over the past 20 years. In fact, Blankenhorn points out that Home Depot’s current dividend would be a return of 13% against the company’s share price in 2001.

Overall, the dividend looks very secure. Although revenues are disappointing for some analysts, they are still increasing compared to the same period last year. And that’s good news if you want to get HD shares.

At the time of writing, Chris Markoch had no position in any of the above securities.